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Editorial Note: We're the Million Mile Secrets team. And we're proud of our content, opinions and analysis, and of our reader's comments. These haven’t been reviewed, approved or endorsed by any of the airlines, hotels, or credit card issuers which we often write about. And that’s just how we like it! :)

Southwest Airlines: Here’s What the CEO Said About Passengers Who Use Points Instead of Money to Book Flights, Foretells Future of Southwest Credit Cards

October 30, 2018
by
Scott Lieberman Scott Lieberman

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Scott LiebermanMillion Mile Secrets Team

Signing-up for credit cards through partner links earns us a commission. Here’s our full Advertising Policy.

But we’re always a bit nervous that this incredible deal might be snatched away from us. I mean, team member Keith says he’s saved over $5,000 using his Southwest Companion Pass! And many of our readers commonly transfer points from their Chase Sapphire Preferred® Card (our #1 pick for travel credit cards) to the Southwest loyalty program to buy flights with points instead of money.

So when the CEO of Southwest talks about how he feels about passengers using Southwest points to fill his planes — and how he feels about the Southwest credit cards — we listen very carefully! Here’s what we learned:

Here’s How Southwest Sees Passengers Who Use Points Instead of Money

Southwest Airlines, like most public companies, holds an “earnings call” to talk about what happened and what will happen with the business.

Helane Becker asked Southwest CEO Gary C. Kelly:

“…I just have a question actually as you think about Hawaii service for next year. When we’re looking at the bookings for that, when you start to look at bookings for that, what are you thinking about in terms of redeemed Rapid Rewards [Southwest points] versus people actually paying for those flights? Because I would imagine a lot of your customers are chomping at the bit to start booking and are saving up Rapid Rewards for exactly that.”

Gary C. Kelly:

“… We have a different frequent flyer program. Every seat every day is available for redemption, and it’s de facto revenue managed. It takes more points to make a booking the week of travel than it does to get an advance purchase ticket. So there are natural revenue management controls over that.”

Mr. Kelly is saying that the number of Southwest points you pay is directly related the dollars you’d have to pay. We find that each Southwest point tends to be worth ~1.5 cents. So it’s not like you’ll get a super expensive ticket for just a few points. However, the Southwest Companion Pass IS the way to double your points value. 🙂

Southwest Says They’ll Start Flying to Hawaii in 2019!

The Southwest CEO continues,

“…We’re really indifferent where those awards get used… Our assumption is our customers earned these points and they’re going to fly them somewhere. If they want to fly to Hawaii or they want to fly to Amarillo, it’s all good by me.

But I can’t imagine a scenario like the old days, people were worried about we’re going to fill this whole airplane up with zero paying frequent flyers. I can’t imagine that scenario. But if it happens that way, you still won’t see a problem.”

The President of Southwest Airlines, Tom Nealon added,

“My guess is you’ll see a lot of Rapid Reward redemptions early on, a lot.We’ve been acquiring customers and credit card holders for the past year very, very intentionally. And they just, as you said, are building their points up. And as Gary said, we don’t care. We would love to have that plane full of passengers. Whether it’s a cash passenger or a Rapid Reward passenger, I’m indifferent. They are good customers and we’re getting our financial piece out of that sale. That’s how I think about it.”

According to His LinkedIn Profile, Mr. Kelly Has Been With Southwest Airlines for Over 14 Years

“I’ll make one other quick business argument to you, which will hopefully give you – if you’re not convinced yet, more comfort, which is remember, the awards are earned in two basic methods. One is you can fly and get a point, but you can also spend money with a credit card and get a point, and for those we get paid.

So the way we look at it, whenever we have a redemption, it’s not zero dollars coming in. It’s realizing the deferred revenue or the air traffic liability that was already received by Chase in payment of those points. So maybe some customers literally have – they’re taking a “free ticket,” but most of them have a blend of credit card and flights. And so that makes it even easier to get comfortable that it’s a good business decision for the company to manage the frequent flyer program this way.”

Southwest is happy with how folks like us are signing-up and then spending on their credit cards issued by Chase. And we’re happy to do it because of all the flights we’re getting!

Tom Nealon, President of Southwest Airlines,

“We are continuing to see strong growth in new Rapid Rewards credit card members as well as strength in credit card spending, both of which were up again double digits year over year. And while it’s early, our new credit card [Southwest Rapid Rewards® Priority Credit Card], which launched in Q3, is also performing very well, and it’s also in line with our expectations.”

Earn the Southwest Companion Pass — the Best Deal in Travel (October/November is the best time to apply)

I’m relieved to hear how the decision-makers value us Southwest points travelers! We’re NOT seen as a liability or some kind of marketing thing. They stated that flying on Southwest with points contributes to their profits. And it’s VERY profitable for us folks who like flying on their airline using points!

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Editorial Note: We're the Million Mile Secrets team. And we're proud of our content, opinions and analysis, and of our reader's comments. These haven’t been reviewed, approved or endorsed by any of the airlines, hotels, or credit card issuers which we often write about. And that’s just how we like it! :)

5comments

I don’t think anyone REALLY gets free flights. Merchants pay credit card processing fees. They pass along the cost to their customers (us) However, not everyone uses their miles/points so I suppose those who DO get a heavily discounted flight. I must research this more.

Hi Gerardo – if you’re savvy with miles & points cards, I think it’s fair to consider award bookings free or steeply discounted. Whenever I earn rewards with credit cards, I like to think of it as free because I wouldn’t be earning anything if I paid with cash or debit.

It’s interesting that analysts would have such little understanding of how SWA’s rewards program works. It’s revenue-based, and thus the points are “sold” during flights or sold to Chase. The math is really simple: a flight full of award flyers is just cutting into the liabilities column, already counted from revenue. I’d expect professionals familiar with airlines to have a basic grasp of the concept.

Editorial Note: We're the Million Mile Secrets team. And we're proud of our content, opinions and analysis, and of our reader's comments. These haven’t been reviewed, approved or endorsed by any of the airlines, hotels, or credit card issuers which we often write about. And that’s just how we like it! :)